Your state has ordered you to shut down your clothing store, yoga studio or bookstore because of the COVID-19 pandemic. Or maybe your restaurant can only offer pickup and delivery, and your profits are plummeting. Filing a business interruption claim with your insurance company should provide you with at least some financial relief, right?
Businesses are finding out that collecting from their insurers might not be so easy – might even be impossible – even if they've added business interruption insurance coverage to their business insurance package. Insurers are arguing that losses from the COVID-19 pandemic don't fall under the protection of this coverage.
This could make it impossible for business owners to get relief from their insurers even if their restaurants, apparel stores, jewelry stores and other companies are shuttered for months because of state-ordered shutdowns.
Not a physical loss?
The argument against paying out for COVID-related business shutdowns? Insurers say that business interruption policies only provide coverage when policyholders suffer a loss of income because of physical loss or damage to their business.
If insurers follow this definition, losses from a COVID-related shutdown would not qualify for a payout.
This might come as a surprise to business owners who have been paying for business interruption coverage for several years. This insurance, while not overly expensive, isn't free. Insureon estimates that it costs most small business owners $500 to $1,000 every year for this additional coverage.
The cost, though, can soar to higher levels for owners running larger and more complicated businesses.
Typically, this insurance compensates business owners for lost revenue and other expenses if a fire, flood or other disaster forces owners to shut their business temporarily.
While other forms of business insurance would cover the renovations or repairs needed to reopen, business interruption insurance reimburses owners for the income they've lost because they've had to shut down their businesses.
This insurance can cover a wide range of expenses, including lost revenue, employee wages, taxes, rent payments or relocation costs.
The coverage question
What this insurance usually doesn't cover, though, is income businesses lose because they must scale back their operations. So a restaurant that can't offer dine-in service but can offer pickup and delivery wouldn't necessarily be able to make a claim.
Business interruption coverage also doesn't cover business losses unrelated to property insurance. This is where the larger coronavirus exception comes in.
Consider a statement released by the American Property Casualty Insurance Association. This trade organization stated that even those policies that include business interruption coverage do not provide coverage for communicable diseases or viruses such as COVID-19. The statement is blunt in its opinion of whether COVID-19 losses are covered: "Pandemic outbreaks are uninsured because they are uninsurable."
The association added that insurers could face financial disaster if legislators try to force insurance companies to pay up for COVID-related business losses. According to the association, such a move would threaten the solvency of insurers and prevent them from being able to cover the losses that they do cover under their existing policies.
The National Association of Insurance Commissioners has also released a statement urging Congress not to enact legislation that would force them to pay out for COVID-related business losses. In its statement, the association says that business interruption policies were never designed to cover losses related to "communicable diseases."
These pleas, though, haven't stopped legislators. Many have proposed bills that would require insurers to pay businesses that have had to shut down because of the pandemic.
New Jersey led the way here, with the state legislature becoming the first to propose such a bill. Other states, such as New York and Pennsylvania, have followed.
Even more troubling for insurers, and a potential source of good news for business owners, is the proposed Business Interruption Insurance Coverage Act of 2020. Congress on April 14 introduced this proposal. If passed, it would require insurance companies to cover interruptions because of "viral pandemics, forced closures of businesses, mandatory evacuations and public safety power shut-offs."
Congress has also introduced the Pandemic Risk Insurance Act of 2020 as a type of sister legislation. This act, if approved, would create a fund that would reimburse insurers for some of the costs they would incur by covering losses related to pandemics such as COVID-19.
None of these bills have yet passed, and the insurance industry is fighting them. Expect this to be a heated battle. Several policyholders, represented by their lawyers, have already filed lawsuits against insurers. These cases, too, have not as of the writing of this column been decided.
What can business owners do?
What should business owners do today as the country waits to see exactly what, if any, financial support insurance companies will have to provide them because of the pandemic?
First? Review your business insurance policy carefully to determine exactly what it does and doesn't cover. If you can't find a copy of your policy, call your insurer and ask for one. This is not the time to skimp on your research.
Once you have a copy of your policy, pay close attention to what types of losses it covers. Also, look for any exclusions or limits. You might ask your attorney to review your policy for you, too, asking this legal professional to keep an eye out for anything that might limit or exclude losses related to the COVID-19 pandemic.
Next, start to build your case for an insurance payout. Document how COVID-19 has impacted your business. If the pandemic has forced you to shut your business during a state lockdown or has resulted in a 75% drop in income, document this for your insurer. If your customer base has dwindled because of the pandemic, document this, too. Collect any documents, such as receipts and income statements, that help prove the financial pain that COVID-19 has brought to your business.
If you've had to spend extra money on your business because of the pandemic, document this, too. You might have had to boost cleaning efforts at your business. Maybe you've had to increase the security measures protecting your business as it sits shuttered. This all costs money, money that you've had to spend because of the virus and resulting shutdown. Again, collect any documents that show how much you've spent to keep your business safe or partially operating during the pandemic.
Finally, it makes sense to file a claim with your insurer even if you think the company will reject it. By filing now, you'll make any notification deadlines that your insurer might have in place. This way, if a state or federal law forces your insurer to pay up for COVID-19 losses, you won't have to worry about having missed a filing deadline.
Don't use the pandemic as an excuse to skimp on your business insurance
Remember, too, that even if insurance companies don’t eventually pay out any damages because of pandemic-related losses, this doesn't mean that you shouldn't be reviewing your business insurance coverage on a regular basis. It also doesn't mean that you should cut back on your coverage.
The truth is, every small business needs adequate insurance coverage. Yes, COVID-19 is at the top of everyone’s mind today. But small business owners still face other serious threats, as this short video explains.
Hackers are still stealing data from businesses. They're still accessing the personal financial information and passwords of customers. Employees still might post embarrassing or malicious information online. And customers will still sue business owners if they feel that the products or services they purchased didn’t work or were dangerous.
Because of this, it's important for business owners to continue to invest in small business insurance. You might be disappointed that insurers are denying COVID-19 claims. But your business still needs the additional protection afforded by a solid small business insurance package.